Bargaining and Negotiation Situation

Abstract

This article explores bargaining and negotiation situation. It describes the example of negotiation situation, investigates models of negotiations, the theoretical types of third party intervention and it makes the analysis of example situation.

Keywords: bargaining and negotiation situation, models of negotiations.

Bargaining and Negotiation Situation

Introduction

Negotiations are one of the oldest methods of adaptation and survival of a person in a professional environment and everyday life. Negotiations can end up with an agreement in case the interests, attitudes and goals are not the same. In addition, negotiations are always treated in a civilized community as the most versatile and effective way of resolving conflicts. The use of negotiation (either direct one or that with the participation of a third party) to resolve conflicts continues for the same period of time as the history of conflicts occurs. However, as an object of extensive scientific research they began to develop only in the second half of the XX century. It was the time when negotiating skills became emphasized.

Negotiation is a process of interaction of several interdependent parties, carried out in order to achieve their interests. The key notion in negotiating is a way the problem is solved. However, the problem is influenced by the relationship between parties, opportunities and claims of the parties, personal interests, efficiency of group discussions in finding consensus, etc. Therefore, the negotiation process is more complex phenomenon than the usual communication and it requires consideration of all the conditions and specific mechanism of negotiation. But it is the art of communication and we should formulate the hypothesis that negotiation process with an appropriate model can make a benefit in any situation.

1. The Situation and Negotiation Environment

The situation included negotiations on reducing the cost of the Internet connection between customer and Internet provider.

In customer’s office, access to the Internet is provided by provider A and provider B, who bought the channel from A. A year ago customer decided that A is more reliable and signed a contract with provider A stating the price of 188.8 U.S. dollars per month, including taxes, for 4Mbps .

About three months ago, customer got to know that one of his neighbors (a person with an active lifestyle who is able to defend his interests) has achieved from provider A a price 94 $ 4 per month, including taxes, for 4 Mbps.

Customer would like to have a talk with provider A, rebel and demand the same price. But he decided to take on the task only after all the original data is counted. Upon reflection, he realized that this position is not very strong as the negotiation environment is stressful. Moreover, it will possibly cause negative reaction from an employee of the sales department of provider A.

2. The Parties and the Bargaining Positions

Thus, discussion was presented by customer and the Internet providing companies. Customer met the representatives of both parties, since he wanted to reduce costs and interact consistently with the representatives of both companies, using the shuttle negotiation strategy. But in fact, the contract was signed with the company A, who is the representative of the opposite party in our negotiations. The data he was trying to get from the company B he only needed to achieve his position in negotiations with the company A.

The most common form of negotiations depends on consistently held and then conceded in a certain sequence of positions. Taking any of the positions is in the process of negotiating with any mercenary purpose. The customer’s representatives make it clear for the other side what they want. Then in an uncertain and tense situation there is some point of support. Moreover, the conditions for an acceptable agreement may eventually emerge. However, the same objectives can be achieved in other ways. In addition to positional bargaining, the important criteria of reasonable agreement (efficiency and friendliness) are unattainable.

Speaking about bargaining positions in our case, customer wanted to achieve lower prices on the service provided. During negotiations with the company A, it was obvious that due to the reduction of its profits it wanted to leave prices at the initial level.

3. The Theoretical Types of Third Party Intervention and Intervention Procedures in This Case

There are several possible forms of participation of a third party (Loeb, 1999):

a) mediation, in which the advisory guidelines should not necessarily be taken into account by parties (Loeb, 1999);

b) reconciliation, when the emphasis is not on the sorting out of questions but it is put on  the process which stops interaction;

c) arbitration is a form of negotiation with the permission of the third party who acts as an arbitrator, its recommendations are obligatory for the negotiating parties;

d) facilitation helps negotiating parties in the general understanding of their relationships and goals in the process of reaching agreement.

Arbitration is a practice of negotiations and contentious situations where a third party acts as a judge.

Arbitration algorithm used in the management practices is the following:

1) talk of the arbitrator (the head) to one of the participants in the negotiations on his own initiative or at the direction of a superior head;

2) talk to the second party of negotiations, which may precede the collection of additional information;

3) analysis of the situation of negotiations by arbitrator who is directed to the truth and the development of the award (Pedreira, 2008);

4) meeting with both parties to the negotiations and bring them to the award.

In general, the model of arbitration responds to popular in ordinary consciousness notion that the resolution of negotiation involves clarification of rightness and wrongness of one other. However, it is impossible not to see that this model involves only a substantive aspect of the negotiations and has no effect on the relationship aspect of the negotiations.

Mediation is the help of a third party to two (or more) in search of a mutually acceptable agreement or negotiating a controversial situation (Loeb, 1999).

Mediator is a person who performs mediation efforts.

The positive effect of mediation is associated with satisfaction of negotiators, the size of the consent, the degree of compromise and a decrease in “value” procedure (compared with arbitration) (Latz, 2001).

The positive effect of mediation is also manifested in the size of the settlement, the strength of the agreement and results in the reduction of unfulfilled and improvement of the relations after the talks.

Mediation, as well as any other form of authorization negotiations, has limits of its application. These limitations are (Latz, 2001):

1) lack of a third party’s own interests in the negotiations (neutrality);

2) the weakening of the intrinsic motivation of the negotiators in the development and adoption of an agreement;

3) the degree of the parties’ readiness for cooperative action by the help of mediator;

4) the degree of confidence of the parties to the mediator and to a mediation process itself.

The techniques of mediation are quite varied and range from data collection to the beliefs and even suggestions.

In this situation, customer decided to act without an intermediary, because he wanted to use the strategy that is going to be mentioned below.

4. The Process of BATNA Arrival

To start with, you should consider the requirements and to range them according to their importance into four categories, including:

1. Maximum comprises everything what the party would like to get if it is possible. This category also includes additional benefits that increase the value of the transaction.

2. Minimum includes the objectives which should be achieved by any means if the plans of the parties are to make an agreement on the issue.

3. Compromise means the questions that may be the subject of discussion or about which one side can make concessions in the negotiations.

4. BATNA includes the alternative actions which the party intends to take if the prospect of reaching agreement seems vague or generally far-fetched.

Specifying their aspirations, any party in the negotiations can get a clear picture of the possible outcomes and can decide at what stage further participation in the negotiations is meaningless.

In customer’s case, there was no maximum. He did not set any target to reach a certain minimum price and thus get the maximum discount.

Speaking about the minimum, we should mention that he was going to get the price which could be the same as the one his neighbor reached. The customer had willing to make compromise within a small sum. In case of denial to reduce the price he wanted to go to a competitor of A. This was his BATNA. That was something he was going to reach in the event of the failure of the talks.

5. Theoretical Models, Methods, Sources of Power, and Analytical Procedures Required to Be Utilized in the Negotiation Process

According to a list of participants there are several types of negotiations (Helton & Darling, 2004):

• vertical negotiations (for example, with the higher authorities). They can be both formal and informal;

• horizontal talks (it is held between the members of one team to develop a consensus between the members of different teams);

• unauthorized negotiations (no one has authorized the holding of it);

• the advanced table negotiations (in subcommittees, working groups, etc.);

• high-level negotiations – held between the heads of teams to develop possible solutions.

The models of negotiations are defined on the basis of negotiation process and the factors determining it. Any model must meet three criteria: the negotiations should lead to a reasonable agreement if it occurs possible; they should be effective and they need to improve the relationship between the parties (Whitaker & Austin, 2000).

A reasonable agreement is one that meets the maximum legitimate interests of each party, regulates conflicting interests, can be a longtime, takes into account the interests of society. Effective negotiations are those that lead to a reasonable agreement.

The models of negotiations  are described below.

Principal negotiations.

This model takes into account four factors: people, interests,

Such factor as people defines a distinction between the negotiators and the subject of negotiations. This means that the parties should deal with the problem, not with the people (Wilson-Roberts, 1999). The factor called interests presupposes that the interests, not the positions of people should be considered. Versions are the third factor, while the fourth factor is criteria, meaning that the result should be based on some objective standard. It makes possible to overcome one’s stubbornness and build partners’ efforts to find those or other equitable criteria (Wilson-Roberts, 1999).

Principled negotiation conduct should be soft in dealing with people and hard in considering issues. It is expected that negotiations should continue independently, focus on interests, not positions, analyze and discuss all the proposals, ponder mutually beneficial options, develop many choices insist on using objective criteria (Latz, 2001).

According to this model of negotiations it is meant that the parties have run into controversy in the mutual claims; they are going to make concessions until they find common interests. A classic example of such negotiations is the one between the buyer and the seller. The contradiction here is that the buyer is wishing to buy a cheaper good, while the aim of the seller is to sell something as expensive as it is possible. Scientists have agreed to call such conflicts the resource conflicts and claim trading to be carving up or the struggle for possession.

In most cases parties nominate maximum requirements on the early stages of negotiations, reducing the strength of their demands during the negotiation span which is perceived as a concession (Latz, 2001).

The next model of negotiations is “Mutual benefit”.

This model consists the fact that the conflict is resolved without the loss of one of the parties. The main essence of this method is to find joint solutions, acceptable for all parties.

Finding joint solutions is possible in various ways (Krikorian, 2008):

1. Eliminating the resource scarcity.

This method of negotiating to find joint solutions can be easily illustrated with the following example. Let’s say a wife clash with her husband over her desire to watch TV. Thus, there are not enough resources for everyone and there is confrontation. However, a joint solution in this case is the fact that the husband and wife in equal shares participate in the purchase of a second TV, thereby eliminating the deficit of initially missing resource.

2. Combining interests.

This method of negotiations aims to find a common solution, based on an analysis of the interests of each party. Parties of the conflict are looking for a solution that would satisfy both of them. For example, if a husband and wife are in conflict because one wants to watch TV and the other wants to sleep, taking earphones by one of them can be considered the solution (Daft, 1992).

The next model of negotiations is “Mutual Services”.

This model of negotiations is the one about the fact that each party agrees to cede what is not particularly important for it, but what is very important for the other side. According to this model it is a good idea to give the useless and ask the needful (Daft, 1992).

In order to take full advantage of this model of negotiations, the parties should find out which aspects of the alleged conflict are significant for the parties-opponents and which are not. However, it is not easy to do, because people are afraid that they will be compelled to cede to them for minor issues without offering anything in return.

The next model of negotiations is “The specific compensation”.

It is based on the fact that one of the parties gets what it wants and losses of the other side are reduced or even eliminated. This reduction in losses often takes the form of specific compensation, in which one party receives things that corresponds to the lost (Carrell & Heavrin, 2008).

The next model of negotiations is “Non-specific compensation”.

The essence of this model lies in the fact that one of the parties gets what it wants and the other side gets the things which are not connected with the subject of the division. This compensation is not related to the costs incurred by the conflict. In this case, the side that is satisfied provides compensation for the other side. An example might be “compensation” that the victim receives from the originator for refusing to proceed the case in the court.

There are several types of non-specific compensation (Belknap, 2003):

1. Secret agreement. The employee agrees to a lower-paying job in exchange for a specific timetable;

2. Delayed sequential transmission of benefits. The employee occasionally agrees to work for lower wages in exchange for long trips abroad provided by the organization.

However, we must take into account that non-specific compensation as a method of conflict resolution can sometimes be a half-measure and leads to even more serious conflicts in the future (Belknap, 2003).

Often negotiations can be finished before it begins. The reason primarily is the absence of a well thought-out strategy, aimed at achieving a positive result. Thus, the contracting parties have formed a stable barrier which is very difficult to eliminate.

6. The Mechanics of the Procedures

Customer used the shuttle negotiation strategy. He tried to get all the information he needed for the negotiations with the provider A. Customer want to illustrate the mechanics of the negotiation procedures, conducted with the use of questions, framing of which provided the necessary information and result (which was described in the following question).

The customer called to provider B and told that he is a client of the provider A, who provides access to the network at a price of $ 80 a month for 4Mbps. Everything he told was true, but he simply did not tell about tax. The customer asked him:

– Can you suggest any better idea?

They are the competitors and they used to take the clients of each other.

– Yes, of course …  68 dollars will be good for you?

– Including taxes?

– Yes.

-You can provide 6 Mbps at this price?

– 6 Mbps … yes, we can.

– How fast can you connect?

– Yes, even tomorrow! But at first new connection will cost 115 dollars for you.

– Thank you! This is a very interesting offer! I’ll call you back.

Now with this mechanics of the negotiation procedures, using these questions, having got this type of proposals the customer made his position in dialogue with the provider A much stronger. He did not want to pay 115 dollars for a connection and change A to B. But negotiating with provider B he preferred to pass it over in silence, in preparation for a telephone call to the office of A.

7. The Strategies Utilized or Contemplated and the Results Accomplished or Anticipated along with the Conditions of Settlement

One of the recognized researches of the American School of Diplomacy Henry Kissinger was the inventor of the tactics of the so-called “shuttle diplomacy.” It was mentioned below while speaking about customer negotiations. But it should be added that we attribute this type of tactics to manipulative negotiations.

Thus, the results accomplished along with the conditions of settlement should be described. Having got all necessary information, the customer called the provider A.

– Hello!

– Sales department of A. Hello. How can I help?

– We use your Internet access service at a speed of 4 Mbps for 188.8 dollars a month, and the provider B offers us 6 Mbps for just $ 68, including tax. We are completely satisfied with the quality of communication provided by your company. Could you offer us anything competitive or better?

– Hmm … yes, we could provide 6 Mbps for $ 64 a month.

(“Another $ 4 cheaper!” – I thought).

– Including taxes?

– Yes.

– Do I need something to reconnect?

– No, just come and amend the agreement. I will inform the technical department that you have increased the rate from 4 to 6 megabits.

Conclusion

So, particular situation and negotiation environment were investigated. The parties and the bargaining positions, the mechanics of the procedures, the strategies and the results were considered. Thus, with the help of shuttle diplomacy a significant discount in the negotiation process with the company A was achieved. We can summarize that the ability to negotiate using appropriate strategy is very important and can bring great benefits. It confirms our thesis.

Related Free Analysis Essays